Reverse Cap Weighting is a unique way to provide exposure to the companies in S&P 500.
A Proven Approach
Market-cap weighting results in a top-heavy portfolio. The reverse approach on the S&P 500 does the opposite, weighting companies by the inverse of their relative market cap. This provides exposure to hidden gems within the S&P 500.
Why limit your exposure? The Reverse 500 methodology removes the concentration risk of traditional cap-weighted index products, resulting in a more statistically balanced portfolio (bell curve capitalization exposure).
By investing smallest-to-biggest, this investment approach is value-tilting its investment exposure to the smaller end of the market cap spectrum within the large-cap space.
Its methodology can deliver long-term results compared to other weighing or factor-focused approaches around the S&P 500 .
The market concentration ratio measures the long-term return spreads between a market-capped and a balanced portfolio.
Notice the last time this ratio started to trend downward was between February 1999 and September 2009.
Did the market turn in March of 2020 ?
Studying the short-term trends of the overall market can also be very telling.
In August 2020, the return spreads of the largest 10 companies against the overall U.S. equity market peaked.
This also happened in August 1992, March 2000 and February 2009. Could this be another sign that the US equity market is trending away from its concentrated focus
The Reverse 500 can be used as a tactical position to help diversify your existing concentrated equity exposure.
The Reverse 500 approach over the long run helps find value within the smaller companies within the S&P 500. This focused methodology make the Reverse 500 an ideal core position.